At this stage of the game, the majority of S&P 500 companies have reported earnings. So it’s a pretty good time in which to analyze this earnings season. I am going to rely on the in-depth analysis done by my good friend Sheraz Mian, Director of Research at Zacks. He is one of the top commentators on earnings trends…so it’s always worth getting his insights.
Nutshell Statement: “…this will still represent a favorable corporate earnings backdrop for stocks.”
3 Key Insights:
- “Q3 earnings growth is expected to be in double-digits territory for 13 of the 16 Zacks sectors, with Energy, Finance, Construction, Basic Materials and Technology sectors with the strongest growth and the Conglomerates sector the only one expected to experience a modest earnings declines.
- The implied ‘EPS’ for the index, calculated using current 2018 P/E of 17X and index close, as of October 30th, is $158.03. Using the same methodology, the index ‘EPS’ works out to $173.39 for 2019 (P/E of 15.5X) and $189.45 for 2020 (P/E of 14.2X). The multiples for 2018, 2019 and 2020 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.
- Total earnings for the 313 S&P 500 members that have reported results are up +22.7% from the same period last year on +8.4% higher revenues, with 78% beating EPS estimates and 62.6% beating revenue estimates.”
This robust growth this year is mostly because of the recent corporate tax changes in the US. That will cool down to a more realistic 8-10% pace next year. Even still, when you see the PE on the overall market, that is actually quite modest at this stage of a nine year bull market. Meaning that from both an earnings growth and valuation standpoint there is more upside potential for stocks. And as noted in the first bullet above, the energy group is seeing some of the strongest growth, which is why I share this stock with you below.
Stock of the Week: Whiting Petroleum (WLL)
They are coming off an impressive 59% earnings beat this past week. The feather in their cap was stronger than expected oil & gas production.
Sometimes in the energy industry, that increased production is only a short term benefit. So its important to analyze the updated analyst reports to see what it portends for future production increases and profits.
Gladly the long term picture is improving for WLL. Analyst earnings projections for 2019 have increased 26% since their last quarterly report. Meaning that analysts are quite pleased with Whiting’s operational prowess expecting more good things ahead.
These same analysts also think that Whiting is an extreme value with an average target price just above $60.71. That represents over 75% upside from Friday’s closing price and certainly has this value investor’s attention.
Perhaps you should pump some of these energy shares into your portfolio. Start your research of WLL here.
Wishing you a world of investment success!
Steve Reitmeister
Editor in Chief
TipRanks Smart Investor
Disclaimer: In general, I own the stocks that I highlight in commentary. When you think about it…why would you ever take advice from an investment professional who wasn’t willing to put his money where his mouth is?
